100% CMHC financing

[mar]

Hello everyone,

I have come across this interesting article on 100% financing and would like to get some input from experienced investors. I have brought this program up in the middle of some other threads, but would love to hear a full debate on the pro`s and con`s. It seems tempting as it allows us to build our portfolio`s very quickly, but at what cost and risk?

Here is the article:

http://www.milliondollarjourney.com/income...w-investors.htm

Thanks in advance,

Marcus Shaver
Ottawa

 

[PeterKinchMortgageTeam]

QUOTE (mar @ Apr 9 2008, 10:01 AM) Hello everyone,

I have come accross this interesting article on 100% financing and would like to get some input from experienced investors. I have brought this program up in the middle of some other threads, but would love to hear a full debate on the pro`s and con`s. It seems tempting as it allows us to build our portfolio`s very quickly, but at what cost and risk?

Here is the article:

http://www.milliondollarjourney.com/income...w-investors.htm

Thanks in advance,

Marcus Shaver
Ottawa


The premiums are very high so it should be something to be considered only if you plan on keeping the property for some time. Its also very difficult to get positive cashflow with such a large mortgage.

Building a portfolio requires thinking several steps ahead. If you wind up with negative cashflow which in many cases you will (keep in mind that most banks will not allow you to use the revenue from non conforming suites in your debt service calucation), that deficit is factored into your TDS. With each deficit, your TDS gets higher. Even with a very strong personal income, it does not take many of those kinds of properties to ruin your ability to get any future financing.

That being said, it certainly has its place and can be a great tool under the right circumstances. Make sure that your broker or banker knows your long term plan and also, that you understand what, if any, impact that property will have on your portfolio and your ability to qualify in the future.

 

[Nir]

Hello Marcus, an interesting article indeed. Thanks for posting.

Peter raised good points, just make sure you have a positive cash flow and it can be a great tool for purchasing real estate. Whether you put 20% down or zero down is not critical, the bottom line cash flow is (together with expected appreciation in the area of course). There are properties with potential in Ontario that will generate positive cash flow even with zero down.

Good luck and thanks again for the article!
Neil

 

[mar]

Thank-you all for your responses to date.

Additional input would be appreciated. Our strategy is to buy townhouses & semi detached homes in smaller towns in Ontario. These towns should feel a ripple effect from the Top 10 towns presented at the Quickstart meeting. We are financing at 100%, 40 yr am, so the premium is huge @ 7.85%. Even with this premium, we are in the "cash flow zone" with full financing...0 down. As I understand it, We are able to write off the CMHC premium over 5 years. We plan on holding these properties for 10+ years and have found quality long term tenants who appreciate renting in quality neighbourhoods. Even at 80% offset, we are breaking even and should be able to buy many more properties this way. Our mortgage broker is well informed of our long term intentions. Please let me know if We should alter my strategy and why. We are shopping again this weekend, so would love to hear from you soon.

BTW: Peter, great presentation this weekend, very informative!

Thanks again,

Marcus Shaver
Ottawa

 

[pelkeyr]

QUOTE (mar @ Apr 14 2008, 09:27 PM) Thank-you all for your responses to date.

Additional input would be appreciated. Our strategy is to buy townhouses & semi detached homes in smaller towns in Ontario. These towns should feel a ripple effect from the Top 10 towns presented at the Quickstart meeting. We are financing at 100%, 40 yr am, so the premium is huge @ 7.85%. Even with this premium, we are in the "cash flow zone" with full financing...0 down. As I understand it, We are able to write off the CMHC premium over 5 years. We plan on holding these properties for 10+ years and have found quality long term tenants who appreciate renting in quality neighbourhoods. Even at 80% offset, we are breaking even and should be able to buy many more properties this way. Our mortgage broker is well informed of our long term intentions. Please let me know if We should alter my strategy and why. We are shopping again this weekend, so would love to hear from you soon.

BTW: Peter, great presentation this weekend, very informative!

Thanks again,

Marcus Shaver
Ottawa

Hello, My name is Rob.

I have had all of my JV partners qualify with 100% financing since that has been an option. Your parners have to have excellent credit and above all the property must be able to support the expenses. Ensure that you have money in the bank for a rainy day as paying the mortgage with no tenants is a not fun.

The upside has been that my parners have been able to purchase a number of properties with very little capital outlay. As the high ratio mortgages begin to effect what my parners could finance then we started to do property with more down. Consequently my parners have been able to quickly accumulate a large number properties and are set for the 2009 upturn.

 

[MrsChas]

I know that you are talking about rental properties, but what do you think about getting 100% financing for your principal residence if you are planning on investing in the future? What are the implications of having the high premium?

 

[RobMacdonald]

Financing your principal residence at 100% makes much more sense. The premium is not the same, and is drastically reduced for your principal. You would be paying a premium of 3.7% for a 40 year amortization. This will preserve your capital for purchasing investment property, which in most cases will help bring the cash flow in line.

 

[mortgageman]

QUOTE (MrsChas @ Apr 30 2008, 04:52 PM) I know that you are talking about rental properties, but what do you think about getting 100% financing for your principal residence if you are planning on investing in the future? What are the implications of having the high premium?

You end up having to debt service with the included insurance premium. So the bigger the mortgage, the harder it will be to qualify on your next property(ies)

 

[Thomas Beyer]

paying a 7.5% premium on the remaining 20% (from 80% LTV to 100%) is expensive money .. but maybe worth it in the right situation !